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Friday, January 7, 2011

Expirement With Beating Undercutters

﻿ I once read that the auction house posters could be categorized into 4 types of sellers that each have unique qulities.

Random Seller: These players generally dont sit in the auction house much and have no respect for the market or its posters. They come only to sell an item just because they have it and don't care what the price is. You normally find these people posting 25% less then the next highest listing. They also dont have the industry to compete with you so no worries here. I also notice people developing into this sort of seller when trying to get out of a certain market.How To Fight: Best thing to do is offer to buy their items at a cheaper price and then relist. If they refuse saying,"im lowest on the AH it'll sell," undercut them first.

The Monopolist: This guy likes to buy out a market and post it extremely high and will also buyout any undercuts to maintain the high price. Most of the time this takes a lot of gold to start out. How To Fight: You can easily make profit from these guys because they want to buy out all the items you post in their market... if you dont stop posting, he will have to change his gameplan or wait it out.

The AH Camper: You know these people, they dedicate most of their time to watching their markets, always reposting the amount that's sold and will undercut you within a minute of your auction post.How To Fight: Add their toon to your friends list and see where they are in the world, if in a major city, post one item and see what happens.. if you are undercut, wait till they log off. or you can become a Deep Undercutter mentioned below.

The Deep Undercutter: These people say its to benefit the buyers when really they are just trying to make others not want to post. They take a market and crumble the profit to make regular posters fall out of the market... its possible that they plan to raise it later or lower the price to then buy up the undercutters for cheap.How To Fight: If you have the bank to compete (gold) you can attempt to buy them up cheap and relist higher. This strategy works quicker and better if they are offline. Essentially you are using the tactics of a Monopolist.

This post is an introduction to my next one which will be an expirement with a specific undercutter i have on my server and wether or not i can beat him while still making profit.

17 comments:

I don't think I fall easily into any of these categories - I definitely don't do any major undercutting although I do tend to undercut by maybe a few silvers or golds depending on price. I do spend a lot of time at the AH watching & trying to figure out things but I don't repost constantly to undercut & I'm definitely not a monopolist - just too many markets on a busy server. So that just leaves the random seller - again, yes, perhaps I am fairly random in what I post but I always check my auctioneer averages before I post something & if there are already items up I follow the trend unless it's way below my auctioneer data then I just wait until my next visit.

Maybe there should be a 5th category - 'Random Seller with Some Commonsense/Knowledge' maybe? lol

I would agree with Nev's train of thought here. My outlook on the AH at any given time is going to be somewhat dependent on my environment and mood when I am online.

While for the most part Random Seller, I do care about the AH. I don't spend much time at the AH but I post a lot of items and I sway from market to market. I would consider myself more of an Opportunist.

If competition pisses me off though I can easily monopolize most markets or start deep undercutting but I believe both of these tactics come from the same mindset rather than separate ones.

As for my favorite markets I'm usually a deep undercutter as soon as I find someone camping the market to death (which persons others usually classify as bots). I dislike spending ages near the auction house and thus I want to post once or twice and be able to compete. I've reprogrammed my addons in such a way they undercut people I have on a "blacklist" down to the threshold in a single go. This, combined with having more recipes, has been proven effective enough to earn a fair profit without introducing more competitors, aside from the one camper that's there all day long. The rare recipes is which make the real profit and deep undercutting makes them think the market is completely dead, thus leaving out before checking those one or two recipes where only one person is posting.

I think you missed a category. The fifth category (imho) is the Professional.

This is the seller who respects the markets and wants to preserve the integrity of the system. They don't deep-undercut, if they monopolize a market it is an opportunity buy--only 20 Iceweb Spider Silk listed and all at 70%? I'll buy and repost at 100%.

Margins tend to be smaller for the Professional because they are in it for the long haul. When a buyer sees a listing from "ProfessionalBob" or whatever the AH toon's name, they should be able to recognize the seller as a respectable player in the marketplace.

Professionals try to generate new opportunities for themselves, and allow others to play in this new market. For example, if Khorium is a cut-throat market, they may develop a Khorium Power Core market--for more profit--and when others enter this market, there becomes more opportunity for all. The original Khorium is now more valuable because it has two possible outlets for sales.

Professionals will flip, craft, farm--based on what is working now. They tend to be diversified and not subject to a significant income loss because someone flooded the Netherweave Bag supply.

I consider myself a Professional, as I'm sure many blog readers also consider themselves the same. While few and far between, Professionals are the grease that lets the AH gears move smoothly.

You're confusing the Deep Undercutter with the Monopolist and/or the the AH Camper.Deep undercutting is a valid tactic, especially, against AH Campers. Time is money, and expending their time - which is what you're doing by deep undercutting - is a proven counter - you're trying to maximise *your* time-to-profit ratio. Not sheer profit alone.

But the deep undercutter often isn't just doing response. It's a very valid money maker all on it's own:* cheaper but volume sales vs a few high profit sales. You can make a heap *more* money simply by halving your individual item profit.ie. sell 2 items at 10g, vs sell 10 @ 5g. If you manufacture at 2g, the latter wins pants down: 16g vs 30g. Numbers made up for example.

* one advantage with deep undercutting is that you're massively reducing your risk. you don't have a few high risk, yet potentially huge payout items. You have lots of sure fire sellers, and the ability to rapidly make more in afk time.

* "my" manufacturing costs may be *significantly* cheaper than yours - ergo, what you see as me selling below cost (deep undercutting) may in fact be me selling at 200-500% profit.

I'm currently in such a tussle with a camper/monpolist. He's buying my listings for - to me - 200-500% profit, to relist at 2-3 times my selling price. Unf for him, I have an effectively unlimited supply of the goods in question, so rather than forcing me out of the market, he's become my best customer. I'm making an absolute killing here, to the point where I'm having difficulty spending enough time online to ensure he buys all my stock. Shame. >:)

Deep Undercutting is not a WoW thing either. Look around you in the unreal world (WoW being the real world natch). Examples abound of discount chains making huge profits in volume sales.

Deep undercutting CAN be a viable option, especially on high value items or when you are waging AH PVP.

However, DU pricing is more often the tactic used by unskilled AH players, or "weekend warriors" who don't log during the week.

If the market rate for Netherweave bags is 18g, why make and list 20 bags at 8g? This drags the profit down for everyone. Sure, you can argue that you farmed the cloth so "cost" is 4g/bag, making 8g is a 100% profit. In reality this is a fallacy. Even if the cost is really 4g, why would you limit yourself to 100% profit, esp if you can sell them for 18g and make 350%?

The same concept applies to your example--if you have materials available that let you sell for "200-500% profit", but that still represents a fraction of the market value, why would you be interested in selling below market value?

The only reason I can figure is that you are after a quicker sale with no competition. In that case the wisest move may indeed be that of your "best customer" who is buying your goods and stockpiling them.

Not sure what the commodity is, but that may be the best thing he can do. I have used that tactic on high value items sold below market, banking on flipping them before the DU player logs back on and does it again. Maybe he's re-selling for high profit when you aren't on.

Deep undercutting doesn't reduce your risk as much as it reduces the profit for everyone. Depending on the item, like say cloth or leather, there is sufficient demand that the market value of the product is usually a valid price point.

The situation that comes to mind for me is wool cloth. Market value is usually 8-9g/stack. However, on weekends, people dump their wool (presumably from the questing and dungeons they did on the weekend) at 3g, 4g per stack. Sure, I buy all this wool at that price.

Why, you ask?

By Tuesday/Wednesday there is no wool in the AH and those 30 stacks I bought for 4g each I can now sell for 8-9g each Wednesday through Friday. And I do, every week. Same is true for leather and other trade goods.

There is no real world equivalency. Wow materials are all the same quality--unlike the real world where you can buy a Sharp TV from Best Buy for $500 or one from Wal-Mart for $250. They look the same but Wal-Mart's is last year's model and doesn't have the same features. Or you can buy an off name brand for even less and hope it doesn't fail. But your wool used to craft bandages is the same quality at 2g as it is at 10g.

You mention "This drags the profit down for everyone" a couple of times.Irrelevant. Not interested in everyone's profit. This isn't a charity.Only one bottom line matters. Mine. [1]

"The only reason I can figure is that you are after a quicker sale with no competition."Well of course! I explicitly said that in the original!

If you leave prices high, you get fewer (ie slower) sales.Drop prices dramatically, you get more (ie faster).

The goal is to find a suitable price point such that more sales is greater profit than fewer higher priced ones. The fallacy you seem to be stuck with, is that the highest price that someone is prepared to buy at, is somehow "best" or "market rate". It's not.

Recall, I can make widgets in effectively infinite quantities - the only thing limiting my profit is how many folks are prepared to buy. Reduce prices, more folks buy (vs "do I *really* need this? No. Won't buy."), I sell more, I get greater profits. Vs trying to maintain some sort of artificial scarcity.My competitor is trying to sell based on artificial scarity, when there isn't one. The mindset you're evincing is that of someone who's used to dealing with real scarity. eg snatch lists for ultra rare items.

What I'm selling is a distraction to the discussion. The argument holds for most of the products we can sell in WoW.

I hate arguing via analogy and apologise for having done so. But: The real world has a lot fewer manufactures than most people realise. Your example doesn't hold true.Many products only differ in marketing and wrapping. Bread from a supermarket is a classic case in point. Clothing is another. Brand X is high quality and is very expensive. Brand Y is cheap, but good enough quality. Both come out of the same factory. The *only* difference is the label attached.

We see very clever use of marketing in this very blog wrt MFCs. It works.

I chuckled at your attempt to 'fear' me: "Maybe he's re-selling for high profit when you aren't on." Wrong mindset: "that is why *you* fail". ;-)If anything your fears are your own being exposed. The same logic applies to any undercutting. Not just deep. Amazingly one can be undercut when one isn't on too. ;-)Whenever you resort to an emotional hook to swing an argument, seriously, re-examine your own case. It's a strong clue that you're cargo culting "we do it this way, because we always did it this way". So is strawman arguing. But I'll ignore that for now. :-)

The tl;dr version?The goal is not to "Win" by selling at the highest price. That's epeen in all it's questionable glory. The goal is *profit*, and the only competitor you have with that goal is yourself.

[1] In reality this is stupid. Annoy folks enough and they'll gang up on you. I deliberately phrased it that way to get the point across, hopefully it did. :-)

Sorry, broke my cardinal rule by replying to someone unwilling to post a name or profile. But, in for a penny, in for a pound.

Responsible AH players should have respect for the market and the ability of their competitors to make gold. Yes, the goal is profit but without some reasonableness the market would suffer and hurt everyone--including you.

Using your example, let's say I had a similar supply of mats and crafting ability. I'm willing to make and craft widgets for a profit of 10% so I can deep undercut you all day. Now I'm the one writing and you are the one looking for somewhere else to make gold.

Same is true for my real example, Netherweave bags. I can sell a few at a time for 16g-18g so why would I be willing to settle for 6g-8g? I can make them for 4g. But I'm diversified, so I can list the bags when it makes sense to do so at my margin, and store them until then. Or just not create them until then.

The reason real world examples don't work is the same reason deep undercutting is such a ridiculous strategy (save some limited AH PvP scenarios). There is no difference in quality.

I make no attempt to "fear" you and my logic is sound. The fact is you don't know the other players strategy unless you camp the AH 24/7 or he tells you what it is. You can guess what he is doing, but maybe he's trying to keep you active in a market he cares little for so you will stay out of the ones he does care about.

There is no "cargo cutting" or "strawman". The fact is that for anyone serious about the AH there should be a concern for fellow players and their ability to make a profit.

Use your final comment--if the goal is profit then why settle for 200% to 500% when you can make double that? I submit the goal is not profit but rather quick sales at your margin--a monopolistic strategy variation. I suppose you admit as much all along.

If you are diversified then you can make higher margins on more products--and list when it makes sense to list. Personally I have 4 guild banks on my alts with supplies of what I need to craft and/or stockpile. I'm fairly well prepared for AH PvP or to wait out cycles. I suspect you are not, which is why you practice deep undercutting.

Again, I don't begrudge you this strategy and do find a use for it myself in limited situations. But not as an overall approach. To do that, imho, would be irresponsible.

"I'm willing to make and craft widgets for a profit of 10% so I can deep undercut you all day."

Unless I'm willing to accept 9%. and so on. Welcome to the PC industry in the Real World, where razor thin margins are the norm. Next.

At some point demand will outstrip supply - and that becomes the balance. Of course, if demand never outstrips supply - eg saronite - then those who can no longer be bothered for the profits involved will exit. Cest la Vie.That Blizzard have put a hard floor on items, via vendoring, is all to the best. Such that when long term (ie till end of expansion) supply does flood a market, there is always a value for casual sellers. This isn't relevant here, but I note for interest.

"if the goal is profit then why settle for 200% to 500% when you can make double that?"

You're confusing percentage on a single item to profit (ie gold in the hand) across multiple items. As I said originally:"ie. sell 2 items at 10g, vs sell 10 @ 5g. If you manufacture at 2g, the latter wins pants down: 16g vs 30g. Numbers made up for example."

You're arguing that you'd rather sell 2 for 10, and make a 16g profit. I'd rather sell 10 for 5, and make a 30g profit. Perhaps the key missing here: sell 10 for 5 and make 30, IN THE SAME TIME PERIOD, that you'd sell 2 for 10 and make 16.

For some reason you keep throwing up strawman arguments, ironically also denying that you're doing so? Or again attempt to use fear to argue your point. Consider: are you simply trying to win the discussion/argument, or learn something from it?

The other players strategy is irrelevant. You *must* be able to be profitable in ignorance of their designs. You're only setting yourself up for tears if you need to "know" what they're doing and why/how to profit.

"I submit the goal is not profit but rather quick sales at your margin"

Err. That is profit. I've explicitly agreed with you on this point twice now. I'm not sure why you keep trying to argue it?

Part of the issue, as you're amply demonstrating, is that many folks simply do not understand how to deep cut and how you can make even more money by doing so than keeping prices high. It's a fantastic "bug" in peoples thought processes, they don't get it; they can't deal with it. Win!

Again, the key is manipulating demand. Supply is not the problem here. Demand is.

We are going around in circles at this point. I agreed in my first reply to you that the strategy has merit in certain situations. My position is that it doesn't make sense as a single strategy for many reasons--none of which seem to resonate with you.

I still maintain that the key here is diversification. If I'm not making headway in a market where you are practicing a deep undercutting strategy I will make my gold elsewhere.

Continuing to argue real world examples ((the PC industry this time)) is not analogous. While you have stated that you don't believe there are significant differences in many goods in the real world marketplace (and I do disagree), I maintain that ANY difference between goods creates a comparison of features and results in a value judgment by the consumer that cannot and does not happen in WoW. Each item in the AH is just as good as the next.

My original contention was that deep undercutting is an irresponsible method for the long-term as it is a self defeating strategy, and is destabilizing overall. You contend that you really don't care about the state of the market, you just want to maintain your profit.

This primary difference really sums up why we will never agree on this issue. My concern is to earn my AH profit within a framework that is stable and predictable. To that end I practice strategies that result in little (if any) disruption of the fundamental principles of the market. Your strategy is designed to attack these same principles thus creating the uncertainty and disruption I attempt to avoid.

It is not unusual for me to have 1800-2000 auctions on a weekend; during the week I average around 600 at any given time.

And my auctions are in just about every possible category.

Perhaps I didn't clearly state my thoughts regarding "why make 200% to 500% when you can make twice that". You assumed I was talking about a single item. I'm not. I am talking about any sale, every sale. Each product I sell has a margin associated with it that has been developed over time.

Felsteel bars, for example, are selling for 35g today, below my price point of 42g, which is roughly 700% profit for me. I know its 700% because over the last year+ any materials I obtained were only bought if at or below a certain point--I'm perfectly willing to store my bars in the bank until the market rebounds. And it will. When that happens I won't list all 500 I have on hand, but will post 20 at a time--every sale meeting my margin.

The same is true of Khorium. The supply of 400 bars I have on hand were obtained for 15g per bar or less. Pre-Cat I sold them for 60g, listing 2-4 at a time. Now, I'm holding on to them and listing 1 or 2 every time I log on, and I'm getting 149g per bar. When cheaper supplies appear I just refrain from posting until they are gone. None listed? Mine go up at 149g and sell every time.

This type of strategy takes a great deal of work to plan and implement--and it is based on some element of predictability.

As I have repeatedly stated I don't begrudge you your deep undercutting approach. Have a good time with it and I hope you earn whatever your goal is. I feel comfortable that my approach not only works better for me but is more stable in the long run.

If pressed I will execute deep undercutting--but as a PvP strategy designed to punish or drive out a competitor, not as the primary way I hope to earn my gold.

Interesting discussion. It is nice to learn more about how a deep undercutter approaches the market. This can only help me in the future.

I'm amazed. You continue to construct strawmen. And treat them as gospel - convincing even yourself of their validity!At no stage have I ever explained how I approach the market as a whole. Preferring to remain focused on the sole item of discussion - namely how deep undercutting works and is highly profitable; with an eye to correcting the invalid description in the OP.

And yet you construct this incredible fantasy. Even to making claims about things I said that I did not.

Just... wow.

Your attempt to re-explain your mistake with the single item sale, again hammers home: you simply don't get it. You are focused on maximising profit on a single sale of an item.That you couch this in phrases such as "stable and predictable", "irresponsible method for the long-term", "has a margin .. developed over time", makes this horribly clear.

One would have thought that with all the changes wrought in the AH over the past month or two that you'd realise what tosh those phrases are.

AH Camping is irresponsible for the long term.The Monopolist is irresponsible.The Random Seller is irresponsible.

It is hard to keep track of all your position shifts; similarly, it is frustrating that you continue to misstate previous discussions.

Perhaps a recap would help.

Your original post stated "deep undercutting is a valid tactic, especially against AH campers" (and for the third time, I agree that in some situations this is a worthwhile approach).

Your post then continues, "(B)ut the deep undercutter often isn't just doing response. (sic) It's a very valid money maker all on it's own". It is this wider application of the activity that is the basis for our disagreement--I feel a wider application is both irresponsible and hurtful to the marketplace, irrespective of your profit, and threatens everyone's ability to earn a reasonable profit.

Today you shifted positions again, allegedly "focusing on the sole item of discussion-namely how deep undercutting works and is highly profitable".

The "sole item of discussion" is NOT that deep undercutting is viable in limited situations (as we both agree on this), but the wider application of the strategy.

My reasoning (which remains unchallenged) is that deep undercutting is destabilizing and hurts everyone in the market. Your answer was (summarized) that you don't give a crap about the market or anyone else. You only care for your profit.

This led into a broader discussion about why it should be everyone's concern that the marketplace be maintained according to some principles, including predictability accountability, and respect.

You accused me of trying to "fear you" by suggesting another player might actually want you in a deep undercutting position because it helped him, and "erecting strawman arguments" but have yet to give a single example of how a broad application of deep undercutting is more desirable than a reasoned, predictable approach.

(Btw, do you even know what a strawman argument is? It doesn't appear so.)

Then you shifted again, suggesting my strategy is to make more on a single sale but that you would earn more in volume, but lower margins.

I offered many examples of how your assumption is not correct--my strategy is to make a healthy margin on every sale, that this reasoned approach was the sort of diversification that lets a player be successful despite silly behavior by deep undercutters.

And for the record, I never said that a Monopolist or a Random Seller is irresponsible--only that Deep Undercutters are--primarily because they know better but, as you have stated, don't care about anyone else or the the very system that lets them sell.

Random sellers often provide very good volume for goods that will later be flipped. Monopolists often focus on single items to the exclusion of other markets where I am active. They also tend to respect other players' monopolies--AH PvP usually is the result of two players fighting over who will control a monopoly.

I'm again reminded of why I should not reply to posts by "anonymous". You have no public profile so you can misstate my positions, allege I have faulty logic or other construction problems and generally behave boorishly without worrying that someone will call you on it elsewhere.

Either develop and post a profile or let it go. Nothing you have written has justified the destabilization that deep undercutting promulgates upon the marketplace. And you refuse to engage real examples offered with considerable empirical evidence to prove they work over time. In fact, you have done more than I could ever have done to prove the disdain which I have always believed deep undercutters felt for everyone else.

I'm fully prepared for your next salvo which is inevitably coming--you obviously feel as though you must have the last word. So take it. I'm not planning to read it but maybe someone will.

"(Btw, do you even know what a strawman argument is? It doesn't appear so.) "===========The Straw Man fallacy is committed when a person simply ignores a person's actual position and substitutes a distorted, exaggerated or misrepresented version of that position.============

You've done this to my position on each and every reply. Hilariously, you do it yet again in this your final missive.

Apparently you can only attack my argument by twisting my position repeatedly to suit your own responses, making false claim ("Your answer was (summarized) that you don't give a crap about the market or anyone else." Something I have never claimed. Do check note [1] in my 2nd comment.)

And really? Sour grapes? "I'm not planning to read it but maybe someone will."????Is your argument so poor you must resort to this?

In any event I shall restate and expand:Deep Undercutting relies on being profitable on one primary reason: The cheaper in price a given item is, the more will sell.The idea is not to be *the* cheapest, rather to keep the prices low such that the volume of sales is high. Any further undercutting by competitors doesn't matter as such, because sales still happen.This is oft expressed in the real world as to not try and increase your slice of the pie, rather to increase the size of the pie itself. Thus increasing your own profits by having a smaller slice of a (much) bigger pie.ie. You have costs per item of 2g. you can sell 2 for 10g and make 16g profit in a day; or you can sell 10 for 5g and make 30g profit in a day. Despite halving the per item sale price, the lower sale price is far more profitable.

By manipulating the price so low - deep undercutting - you're directly manipulating demand. People who would not have bought from you (I don't really need this now), will now buy.(cont...)

(cont...)Deep undercutting is also a very powerful tool against AH campers and Monopolists.On my own server I am making a killing with one such AH Camper/Monopolist (he does both). He's become my #1 customer and - based on times when he's around - I deliberately target my selling to ... well *provoke* a desired response from him. Namely: buy me out. I observe what he's bought, make some more, repost. Cycle continues.The more he buys, the harder the floor he sets on his own stock value so as to not make a loss. As my own costs are significantly cheaper than his and I have no issues with material supply, I can continue to deep undercut his responses - further driving my own profit in greater sales to other players, or to him.

In WoW there are plenty of examples where we can make successful use of this dynamic:Cut Gems, Glyphs & Flasks being the most obvious broad brush markets.

So:* have a strong supply chain. simply having stockpiles is no good, you can burn through those in hours.* be able to easily make a given item - afk time is perfect here.* sell sell sell sell. and then sell some more.* don't try and be lowest. try and be low and still sell AND remain profitable.* your competitors may be your best customers. You may very well be able to sell more to them and at greater profit than you could in "normal" pricing competition.* TBH, it's worth viewing in terms of farming. We can all make money farming. But then this opportunity cost effect comes into play. So by using this method, you sell more faster, creating greater immediate profit, so as to make even more "tomorrow".

Further Reading:http://wow.joystiq.com/2010/12/02/gold-capped-why-deep-undercutting-on-the-auction-house-works/The gotcha I suggest to watch for with reference to the articles last paragraph:Just because *your* manufacturing cost is X, doesn't mean that a competitors is the same. They may have a deal with some farmers for 75% of AH prices. They may enjoy farming before work. or after...They may have even bribed their children to farm for them: "You can have ice cream when you've farmed X stacks of Y for Dad." ;-)